When Martin Wheatley arrived at the FSA from Hong Kong, one of the first areas he addressed was the impact that incentives might have on driving misselling.
He asked banks to reconsider the pressure to sell that traumatised every visit to a branch to undertake basic transactions.
In guidance first trailed in September 2012 and finalised in 2013, some very clear messages were delivered to the industry and last week the FCA returned a verdict of adequate but could do better.
Our regulator is not against incentives and appreciates the need to focus peoples’ attention on the objectives of the firm. What is needed is clarity that any scheme is monitored to ensure it does not lead to consumers being encouraged to take unsuitable products or certain features being down-played to help the staff member meet their targets and incentive.
While the largest organisations appear to have made good progress on removing the excesses of the old schemes, there are still question on how well this is embedded and whether the new discretionary schemes are being used as intended. Or has the carrot of reward been replaced by the stick of performance management.
The larger banks and insurers appear to have changed approach but in the world of intermediaries of all types and hues, there appears a lot of work still to do. There is a clear wake-up call to the principals of networks to ensure they are fully aware of the schemes in their appointed representative firms. Those who are self-employed and receive all their remuneration from fees or commission are also caught by these rules. The FCA calls this 100 per cent variable pay.
In this case, firm principals need to have management information to look at sales spikes, proper sales quality measures and proactive testing to ensure the customer understands what has been advised.
Observing interviews, file checking and lapse rates measures are not enough, with the FCA suggesting that post-sale calls to assess consumer understanding and checking base facts is essential.
For smaller firms or even sole traders, it might be the only way to evidence that this is being properly and independently assessed and monitored is by engaging compliance support.
Firms will need to be able to evidence that they have data that tracks sales and use quality data to impact on the reward of those who perform at a less than satisfactory sales quality level.
Positives are seen as longer-term bonus schemes, team bonus structures and caps on the amounts that can be earned. But the FCA is also concerned that by moving to a performance management approach, similar pressures to sell might re-emerge in another guise. It will be undertaking further work to ensure the stick is not now contributing to adverse outcomes.
Any firm that has not read the guidance and the follow-up thematic review needs to catch up quickly. This will be a continuing focus of supervision and further work. There will be no new rules yet but ultimately industry action will decide if there is still a safe way to take the best to Rio or the best you can hope for is a half-day conference in Runcorn.
Robert Sinclair is chief executive of the Association of Mortgage Intermediaries